Summary

• Suria Capital Holdings Bhd’s 4QFY20 net profit declined 58.9% YoY to RM4.5m, dragged down by lower contribution across all business segments, coupled with the higher effective tax rate at 60.8% vis-a-vis 33.7% recorded in the previous corresponding quarter. Revenue for the quarter fell 13.7% YoY to RM61.0m. For FY20, cumulative net profit contracted 37.4% YoY to RM9.5m. Revenue for the year declined 18.1% YoY to RM225.4m.

• The reported earnings came below expectations, accounting to 85.6% of our full year net profit forecast RM38.2m, mainly due to the higher effective tax rate. Pre-tax profit at RM47.7m makes up to 93.9% of our forecast of RM50.8m. The reported revenue amounted to 89.9% of our full year estimate of RM250.7m.

• Suria continues to maintain a healthy balance sheet with a net cash position of RM118.2m in 4QFY20.

• In 4QFY20, Suria handled a total of 94,759 (-2.3% YoY) TEUs, which brings cumulative FY20 TEUs at 357,416; accounting to 102.1% of our assumption of 350,000 TEUs for FY20. In the meantime, the group’s total tonnage handled fell 13.5% YoY to 6.4m tonnes due to drop in throughput of all types of commodities handled by the ports as the global supply chain disruption has yet to see a strong recovery towards before pre-Covid-19 pandemic levels.

• Moving forward, we reckon cargo activities may pick-up, taking cue from the rebound in economic activities, coupled with the higher commodity prices, which we expect total tonnage to register 26.0m tonnes in FY21f. At the same time, the construction of a new jetty at Sapangar Bay Oil is on track for completion by mid- 2022 will further boost the capacity to undertaking rising port activities with several ports in Malaysia experiencing yard congestion.

• On the property development, construction for the joint venture with SBC Corporation Bhd for the Jesselton Quay Central (JQC) project (current phase) will see completion pushed back to end-2021. This is in view of the implementation of MCO whereby construction works has yet to return to pre-Covid-19 pandemic levels.

Valuation & Recommendation

• Although the reported earnings came below our expectations, we made no changes to our earnings forecast as we expect the effective tax rate to normalise in subsequent years. Hence, we maintained our SELL recommendation on Suria at an unchanged target price of RM1.02.

• We value Suria through a sum-of-parts (SOP) approach as we valued both its port operations and property development segments on a discounted cash flow approach (key assumptions include a WACC of 8.5%, terminal growth rate of 5.0%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribed a 10.0x (unchanged) target PER to both its logistics and bunkering contracts as well as engineering and ferry terminal operations businesses, based on their potential earnings contribution in FY21f.

• Risks to our recommendation include dependency and sensitivity to commodity prices (mainly crude oil and crude palm oil). The port operation business is highly regulated by the State and Sabah Ports Authority that requires a number of approvals, licenses, registrations and permits from various regulatory authorities.

Source: Mplus Research - 1 Apr 2021